2. The demand and total cost functions for a monopoly firm are: Q(P) = 20-0.5P TC(Q)=4-Q + 0.5 Q M a) Derive the profit maximising Q, P, and compute the firm's profit p b) Suppose instead a competitive industry where the MC curve is the competitive industry's supply function. Derive the competitive industry equilibrium P* and Q*. c) Drawing on a) and b), use a diagram and algebra to compare the monopoly industry and the perfectly- competitive industry outcomes in terms of a. equilibrium prices and quantities, b. economic efficiency (total economic surplus), and c. distribution in terms of consumer surplus and producer surplus
2. The demand and total cost functions for a monopoly firm are: Q(P) = 20-0.5P TC(Q)=4-Q + 0.5 Q M a) Derive the profit maximising Q, P, and compute the firm's profit p b) Suppose instead a competitive industry where the MC curve is the competitive industry's supply function. Derive the competitive industry equilibrium P* and Q*. c) Drawing on a) and b), use a diagram and algebra to compare the monopoly industry and the perfectly- competitive industry outcomes in terms of a. equilibrium prices and quantities, b. economic efficiency (total economic surplus), and c. distribution in terms of consumer surplus and producer surplus
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter11: Price And Output Determination: Monopoly And Dominant Firms
Section: Chapter Questions
Problem 4E
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Transcribed Image Text:2. The demand and total cost functions for a monopoly firm
are:
Q(P) 20-0.5P
TC(Q)=4-Q+0.5
Q²
a) Derive the profit maximising Q₁, P, and compute the
firm's profit p
'M'
M
b) Suppose instead a competitive industry where the MC
curve is the competitive industry's supply function.
Derive the competitive industry equilibrium P* and Q*.
c) Drawing on a) and b), use a diagram and algebra to
compare the monopoly industry and the perfectly-
competitive industry outcomes in terms of
a. equilibrium prices and quantities,
b. economic efficiency (total economic surplus), and
c. distribution in terms of consumer surplus and
producer surplus
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